Paying off Debt: A Year Into our Journey

If you know our story, you know that we are just over one year into our paying off debt journey. We started on January 1st of 2013, after coming to the realization a few months earlier that we were in WAY too deep. I know that many people are likely facing that revelation about their debt right now, and I also know what a scary thing it can be to contemplate starting on the road to paying off debt, especially if you have as much debt as we did, and still do.

Just to give you an idea of where we started, on January 1st of 2013 our debt-to-income ratio was a whopping 65%. We had credit card and other debt that totaled more than half of our annual gross income, not including our mortgage, which was also ridiculously high for our income level. Although bankruptcy and a debt management program were definitely on the table, we decided to give it a go on our own first. Here is some of what we’ve learned after completing year one of a serious attempt to dump debt:

Paying off Debt is Not Easy, and it’s Not Always Fun

I say not “always” fun because there are some days when it’s pretty exciting watching those debt numbers drop. Fun can come and go, but if you’re in deep, it’s never easy. Why am I sharing this potentially discouraging fact with you? Because I want you to have the best chance of success, and if I lie to you and tell you paying off debt is easy, I’m setting you up for failure.

Your best chance of success in paying off debt will come if you know and understand that you’re in for work, and lots of it. Come to grips with this fact before you start your journey to debt freedom, and you won’t have to deal with the shock when the heavy lifting comes.

Your Plan Will Likely Change Multiple Times

When we started our journey to pay off debt, I kind of thought that we’d make our plan, implement our plan, and just sit tight until the dirty work was done. That wasn’t the case, however. We have learned that we need to be assessing our plan and its success on a regular basis, being willing to make adjustments if something isn’t working or if things have changed for us in one way or another.

For instance, last year we set budget limits on certain items, such as entertainment, and then just kind of were winging it for the month. We found we routinely went over in areas with this tactic, and have now switched to an envelope system in areas where we want more control over our spending.

Our grocery budget is another example: In the beginning of 2013, we were determined to spend no more than $300 a month on groceries for our family of six. We learned real quick that this was too strict of a budget for us, and so after a year of trial and error, we decided in January of 2014 to up that number to $400 a month, and we’re much happier at this level.

This doesn’t mean, however, that we’re not still constantly on the lookout for ways to lower our grocery bill even further. It just means that we’ve given ourselves a bit more wiggle room in this area while we’re busy paying off debt, for sanity’s sake. Giving yourself a bit of grace in this way when you’re paying off debt will grant you a higher chance of success.

Celebrate Your Victories, Both Large and Small

When you’re deep in debt, it can be tempting to look at how far you’ve got to go, which can lead to discouragement real quick. It’s important to celebrate each and every win you have, no matter how small, when paying off debt. Celebrate when you’ve stayed on budget, even if it was just in one area. Celebrate every $1000 – or even $100 – drop in debt you make instead of waiting to celebrate when a card is fully paid off. Celebrate each time you avoid giving in to emotional spending. Pat yourself on the back for every win, and forgive yourself for every failure, all while committing to do better next time. (Editor’s note: I could not agree more with Laurie here. Celebrating those victories while paying off debt is vital to success so debt fatigue does not settle in. I know it’s counter-intuitive, but it’s needed to help spur long term success.)

One year in to our paying off debt journey, we’re “down” to a 57% DTI and have dumped a tad over $2500 worth of credit card debt. This may not seem like much for a year’s worth of effort, but it’s less than we had at the beginning of last year, and it’s a nice start on the road to debt freedom, so we’re counting it as a victory.

No matter how big your pile of debt is, there IS a way out. Choose today to never, ever give up your dream of being debt free.

Have you started a journey to debt freedom this year? What are your best tips for staying motivated while paying off a large amount of debt?

Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.

I like how you emphasize that the plan might change We set ourselves a number of short term goals – but I always keep in the back of my mind that nothing is carved in stone. When something doesn’t work for you, it’s OK to twist and tweak a little, till it fits. No need to make this journey a trip to punishment and beyond I think it’s important to stay nice to yourself, after all, you’re doing a good thing.

Thanks, Debby. I so agree about it being okay to twist and tweak. Until you’re in the middle of that journey, you really have little idea about what’s going to work and what’s not for your particular situation. And I love what you said about being nice to yourself – that is crucial! Great tips here, Debby – thank you.

I definitely try to celebrate little victories in my financial “journey.” While I’m not aggressively paying down student loans, I am trying to save more and increase my income. It was nice at year-end to take a step back and celebrate the (humble yet exciting) amount of money I made from blogging, as well as the (again – humble yet exciting) size of our new emergency fund.

That is awesome, DC! I do think it’s important to keep in mind that the picture will look better after a year’s worth of work. Sometimes when we’re in the month-to-month, it doesn’t seem like we’re doing much, but as you mentioned, that look back after a year’s worth of work is exciting. Thanks, DC.

Yeah, we are – thanks, Margaret. I’m pretty happy with our spending, but we are kicking it up just a little bit this year in terms of spending less, so that we can put more towards debt. Those little changes really do add up to big money.

Thanks, Cat. Interesting how the plan changes, isn’t it? We were tunnel-visioned at first when wrenches got thrown into our plan, and it freaked us out a bit, but once we came to accept that change is part of the deal, things ran much smoother.

Celebrating the small victories is an absolutely essential step. Every time you zero out a balance, every time you pass a nice round number. The big goal will take time and patience, so you need to be willing to step back and smile at what you’ve accomplished.

We have SO learned that lesson, Jefferson. At first we just would look at how much we had left, and would become so discouraged, but now, focusing on hitting those round numbers has made all of the difference in the world!

Getting out of debt is tough journey. I was in your shoes a few years ago. There were times I wanted to give up, but I wanted to be debt free so badly. I kept my focus in reaching smaller milestones along the way and eventually was able to get rid of a majority of my debt. I have a very small amount left that should be eliminated in a few months. Keep up the great work!@

I totally agree, Stefanie, which is why I was so inspired by your marathon post. Every step and milestone you reached on that colossal goal reminded me so much of our journey to debt free. It was so inspiring!

Thanks for sharing Laurie and it’s true, the financial “change” process is more of an evolution than a direct linear path to completion. It has to be adjusted and tweaked all of the time, and celebrating successes along the way is the best thing you can do for your mental health and motivation. Congrats on your success so far!

I love how you recognize that the plan will change. No plan is a static thing. It’s something that can set you on the right course and help you get back on track, but the reality is that circumstances will change, you’ll find better ways of doing things, or whatever and you have to be willing to adapt. You guys have done a great job!

I’m still amazed you spend just $400 a month on groceries for a family of 6. We budget about that for a family of 2. I found that making a chart (old school poster board, and markers) and crossing off $100 increments as I paid them was really effective for me. I liked seeing my debt go down and I was actually excited to cross off those boxes every month/week.

We did a chart too, KK. We did a thermometer type of a chart, and it has been very motivating!! Yeah, the grocery budget thing is cool, but we can’t wait until the days come when we can buy a few ribeyes each month.

Your plan will likely change multiple times. Great point. It’s rarely a set it and forget it. It’s always a good idea to monitor your plan to see if you’re on track to reaching your goals. And your budget has to allow for some flexibility. I know it’s been tough, but you’ve also got to be pretty proud of the progress you’ve made. Keep up the good work Laurie!

My wife and I are making some strides towards paying off our debt this year (but we’re also taking on more.) Right now, we’re focusing on paying off her undergrad student loans — largely because we want to get them out of the way before the grad school loans she’s accruing now go into repayment. We’ve put a big dent in it — we socked most of our tax return into it, plus a few hundred dollars we scraped up through cutting expenses. That one payment dropped the balance on her loan by about a third, but we’ve still got a long way to go.

Adam, you guys are doing great!! I think it’s terrific that even though you’re taking on more debt, you’re still kicking it on the paydown. That kind of commitment is crucial to getting rid of the debt ASAP. Great job.

Laurie, you doing a great job.Budgets do need to altered from time to time.
When we buy anything on ‘no payments-no interest’ for 12 months, that is the first thing we pay off. I know it would probably make more financial sense to pay off a credit card, but having a $0 balance is my reward.
Many times we will do the same with credit card 0% promotions, via balance transfers. We will pay off the 0% as quickly as possible, so they will offer us this promotion again…and we just transfer another balance onto it. It is psychologically gratifying to see debt paid off, one card at a time.
All our debt is business (rental properties) but I can’t hardly wait until it is gone. I think the we are headed for another World Great Depression within 5 years or less, and I want to be able to ride it out.

Kathryn, I agree with you – I think we’re headed for trouble too. This is part of what’s motivating us to move so quickly on eliminating our debt. Glad you guys will be in a great place too. Best of luck on paying off that biz debt, too!

You are wise to point out the fact that it’s not always fun. And it’s true that watching those numbers go down can be a big thrill! I used to get a rush after making a big purchase. After a year-and-a-half of debt reduction, I get a similar rush when a debt is paid off. I just have to be patient – because I want all of our debts (including mortgage) to be paid off NOW. Thanks for your down-to-earth, honest writing, and all the best for year two of your journey out of debt : )

We have the same goal, Prudence. Can’t wait till every bit of it is out of our hair. Funny what you said about the rush you get when a debt is paid off – isn’t it fun? Best of luck to you on your journey too – victory will come soon enough.

Congrats on year one. Knocking 8% off your debt to income ratio is not too shabby at all! A big part of it is watching yourself grow and get more confident about being debt free as you go along. I’ve seen you do that exponentially. Can’t wait to see what year 2 brings.

We celebrated milestones (like 1 year down, 2 years down, 1/2 way there, etc) in our debt management program simply by recognizing them. We did ensure that throughout the entire process we periodically scraped together funds to have fun as a couple or as a family. Whether it was dinner out, or a movie, or whatever, those sort of things really helped us keep moving forward.

We’re finding that same thing, Travis. At the end of year one, we were able to all go out to lunch through the gift of some dear friends. It was so nice to be out to eat as a family, and to not have to pay for it as well. It really motivated us.

The hard part with paying off debt for most people is sticking with it through thick and thin. It’s true there will be the good times when you can celebrate those victories and other times when it’s hard to see your money go. The reality is, the money has been spent and it has to be paid back. You have both done so well for yourselves so celebrate! Mr.CBB

When I get down from paying off my debt, I always remind myself that each month I am making progress and any progress is good progress. Sometimes the numbers feel overwhelming, but nowhere near as overwhelming as when I first started!

I have already tweaked my plan a few times, and I plan on changing my direction a bit again as well. Who knows what other changes may arise that I can’t account for as well? I agree that you need to be prepared for things to be constantly changing.

Great points, Debt Hater. We have to work hard too to remember that any progress is good progress. I would say it’s likely the thing we struggle with the most, but it’s important to focus on the improvement itself instead of the percentage of improvement. Thanks for the comment.

You’re dead on Laurie, it’s not always easy and it’s not always fun. But congrats on all of the progress you have made so far. I remember there were a lot of times where I just wanted to give up and throw in the towel, because it seemed like my $100 payment towards a five figure loan wasn’t going to get me anywhere, but I’m fortunate enough to have stayed the course. Progress is progress, and eventually you’re going to get where you want to be!

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